Debt recovery briefs: please mind the gap

March 2016 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION

financierworldwide.com

It is not uncommon for individuals and corporate entities to employ the services of lawyers in recovering debts. A common mode of payment for this professional service is for payment to be based on the amount of debt recovered. This form of payment is not free from dispute. One possible cause of dispute may be the penchant of some litigants to frequently change counsel, which the court in Peterside v IMB (Nig) Ltd (1993) 2 NWLR (Pt 278) 712 at 733D-E highlighted by noting that “in some cases, parties change counsel in the way children change their dress during Christian or Muslim festivals”.

This article examines the attitude of Nigerian courts to cases where counsel is debriefed before the recovery of debt but when payment of debt is imminent. This is a contractual gap that counsel and their clients may not anticipate at the time of agreeing payment terms. The article further explores possible remedies open to counsel.

Unity Bank v Olatunji (2015) 5 NWLR (Pt 1452) 203

Notwithstanding the dearth of Nigerian judicial authorities on the present issue, a convenient starting point is the Court of Appeal’s decision in Unity Bank v Olatunji (supra). In that case, the appellant instructed the respondent’s law firm to take necessary measures to recover a specified amount owed by debtors of the appellant. The letter of instruction provided that the respondent’s fee was “10 percent of the amount recovered”. The respondent instituted an action against the appellant’s debtors and judgement was given against the debtors for the payment of the debt on 26 October 2008. The debtors thereafter filed an application and obtained an order for instalment payments. The appellant terminated the respondent’s brief on 23 October 2008 and the respondent filed an action for 10 percent of the balance of the total (judgement) debt yet to be paid.

The Court of Appeal held that the respondent was only entitled to 10 percent of the debt recovered (i.e., paid) prior to termination of the respondent’s brief on 23 October 2008. The court noted that the letter of instruction clearly stated that the respondent was to be paid 10 percent of the “amount recovered”. This phrase, according to their Lordships, was used in the past tense not in future tense, e.g., “amount to be recovered”; hence, the respondent was only entitled to the actual amount paid by the debtors during the lifespan of the brief. Their Lordships relied on the settled principle that parties are bound by terms of their agreement and neither the courts nor a party can unilaterally rewrite the same. Accordingly, where the words used in contractual documents are unambiguous, courts must give the operative words their simple and ordinary meaning.

Savanah Bank v Opanubi (2004) 15 NWLR (Pt 896) 437

The facts of Savanah Bank v Opanubi (supra) are similar to those of Unity Bank v Olatunji. Surprisingly, neither the court nor counsel in Olatunji made reference to the Supreme Court decision. In Opanubi the appellant instructed the respondent (a legal practitioner) to recover about N99.3m owed to the appellant by a debtor. The letter of instruction stated that the respondent’s fee would be 10 percent of the actual amount recovered by the respondent. The respondent filed an action against the debtor resulting in a judgement in terms of the claim. The debtor paid N50m out of the judgement debt from which the respondent was paid N5m. The appellant thereafter terminated the brief and afterwards received a further payment of N47.5m from the Central Bank of Nigeria on behalf of the debtor.

Although the Supreme Court held that the debriefing of the respondent constituted a breach of contract, the action failed on the ground that the respondent’s claim was defective. The respondent had alleged that his claim was based on a quantum meruit, however the reliefs which he sought and the averments in his statement of claim did not support a quantum meruit claim as the respondent gave no particulars or information in his bill of charges upon which the court could fairly assess his claim on a quantum meruit basis.

Further analysis – breach of an implied term

Although the respondent’s case in Opanubi failed on the ground of a defective claim, the Supreme Court notably held that the debriefing of the respondent constituted a breach of the agreement. Uwaifo JSC noted that where a party to a binding contract had rendered services under a contract (which has not been fully performed), there is liability if it is terminated by a counterparty without justification. According to his Lordship, such termination amounted to a breach of the contract, given that there is an implied term that an enforceable contract will not be brought to an end without just cause.

Accordingly, although the Court of Appeal in Olatunji rightly noted that courts do not have powers to interfere with contracts, it is settled that courts may imply certain terms in order to fill gaps left in the terms expressly agreed upon by parties: Olarenwaju Commercial Services Ltd v Sogaolu (2015) 12 NWLR (Pt 1473) 311 at 326G-H; Mazin Engineering Ltd v Tower Aluminum (Nig) Ltd (1993) 5 NWLR (Pt 295) 526 at 537E-F, 538E-F.

Accordingly, it is a well-established principle of contract law that a term is necessarily implied in a contract that neither party will prevent the other from performing it, and that a party so preventing the other party is liable for breach: William Cory & Son Ltd v London Corp (1951) 2 KB 476 at 484. It follows that where a person, e.g., counsel, is employed to do work, with payment to be made on completion of the work, there is an implication that the employer will not do anything to prevent the employee from earning the agreed remuneration, unless the employer can justify such interference: Trollope & Sons v Martyn Bros (1934) 2 KB 436 at 452, 456.

Exploring further – anticipatory breach

Counsel whose brief is terminated in a manner as in Opanubi and Olatunji may hinge his claim for breach of contract on the doctrine of anticipatory breach. A claim for damages for anticipatory breach will be available where before performance is due, a client repudiates the contract by either renouncing it or disabling himself from performing it: Universal Cargo Carriers v Citati (1957) 2 KB 401 at 438. Counsel would thereafter be entitled to accept the client’s renunciation by treating the repudiation as an anticipatory breach and ending the contract.

Where counsel opts to accept the client’s repudiation as an anticipatory breach, all contractual obligations under the contract come to an end and are replaced by operation of law with an obligation to pay money damages: Nigerian Supplies Manufacturing Co Ltd v NBC (1967) 1 All NLR 35 at 39. Damages in this regard are assessed by reference to the old obligations: Moschi v Lep Air Services Ltd (1973) AC 331 at 345G-346H. The termination of the briefs in Olatunji and Opanubi constituted an express repudiation of the contracts. It was incumbent on counsel in those cases to accept the repudiation as anticipatory breach. Anticipatory breach must be communicated for it to be effective. Communication is a question of fact, depending on the contractual relationship and the circumstances of the case: Vitol SA v Norelf Ltd (1996) QB 108, 116A-C. It is arguable that commencement of proceedings for breach of contract constituted acceptance of repudiation. However as per Olatunji, this argument can be easily punctured by counsel’s claim for “enforcement of the contract” at the trial court.

An alternative to accepting the client’s repudiation as an anticipatory breach is an affirmation of the contract. If counsel affirms the contract or brief, it will remain in force and counsel would have to await performance on the agreed performance date. In the event of default on the said performance date, counsel may then seek damages for actual breach of the contract. However, given the peculiar nature of the contract (i.e., the briefs), affirming would be virtually impracticable. It would amount to counsel attempting to impose themselves on unwilling clients, notwithstanding the termination of the briefs. This will fly in the face of the decision in Peterside v IMB (Nig) Ltd (supra) at 733D-E where the court stated that a party is entitled to counsel of his own choice and nobody, not even the courts, can deny one of that right.

Conclusion

A client has the right to debrief counsel at any time subject to payment of professional fees. Counsel ought to be mindful of potential contractual gaps where the professional fees depends on the amount of debt recovered. Whether a debriefing will constitute a breach of an implied term or anticipatory repudiation, entitling counsel to damages, will depend on the circumstances of each case. Where counsel’s effort has ensured that repayment of debt is on the horizon, a termination would smack of bad faith. Conversely, a client would be justified to debrief counsel for gross negligence, ineffectiveness or abandonment. Accordingly, a client would barely be faulted for terminating a brief without payment, notwithstanding that counsel had spent sleepless nights chasing debtors to pay and had taken all the steps available to ensure payment, where such efforts are fruitless and there appears to be no light at the end of the tunnel.

Dr Kubi Udofia is a senior associate and head of Corporate and Commercial Practice at Fidelis Oditah & Co. He can be contacted on +23 481 0289 1800 or by email: kudofia@oditah.com.

Kubi Udofia

Fidelis Oditah & Co.